Singapore | 16 November 2021 Digital Trade in Southeast Asia: Measurements and Policy Directions Cassey Lee
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ISSUE: 2021 No. 147
ISSN 2335-6677
RESEARCHERS AT ISEAS – YUSOF ISHAK INSTITUTE ANALYSE CURRENT EVENTS
Singapore | 16 November 2021
Digital Trade in Southeast Asia: Measurements and Policy
Directions
Cassey Lee*
Digitalization or digital transformation has also been touted as another elixir of post-
pandemic economic recovery across the world incuding Southeast Asia. Image:
Freepik.com. Designed by rawpixel.com / Freepik.
* Cassey Lee is Senior Fellow at ISEAS – Yusof Ishak Institute. The author benefited from
the presentations at the Forum on Digitalizing Trade in Southeast Asia and ASEAN
organized by Nikkei and ISEAS and supported by Huawei. The author thanks Tham Siew
Yean, Jayant Menon, Sharon Seah and Siwage Dharma Negara for their useful comments
and suggestions. The usual caveat applies.
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EXECUTIVE SUMMARY
• Digital trade has become increasingly important and will contribute towards the
post-pandemic economic recovery.
• Policy-making to enhance digital trade is taking place amidst limited data on the
digital economy. The resulting knowledge-gap on digital trade is being rectified by
recent efforts to better conceptualise and measure digital trade.
• Efforts are also being made to use indices to measure enabling and restricting factors
that affect digital trade.
• The various indices on digital economy and digital trade indicate that the policy
priorities are likely to differ across Southeast Asian countries.
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INTRODUCTION
A modest post-pandemic economic recovery remains in the books judging from the latest
forecast from the International Monetary Fund (IMF). After contracting by 3.1 percent in
2020, the global economy is expected to grow by 5.9 percent in 2021 and 4.9 percent in
2022.1 Global trade volume is expected to recover even more rapidly, by 8.0 percent and
6.6 percent in 2021 and 2022, respectively. These are fairly optimistic projections and are
still overshadowed by recent surges in Covid-19 infections across many countries. In
Southeast Asia, some countries are not expected recover as quickly as others (Figure 1).
The speed of economic recovery will depend on vaccine rollout (which enables quicker
normalization) and support policies (which maintains the resilience of households and
firms).
Digitalization or digital transformation has also been touted as another elixir of post-
pandemic economic recovery. As economies digitize further, digital trade – which involves
the ordering and delivery of goods and services across borders using computer networks –
will become increasingly important. It is thus important to have a greater understanding of
the nature and potential of digital trade with a view towards encouraging more evidence-
based policy-making in this area. With this in mind, this essay examines efforts in measuring
digital trade and the current state of digital trade in Southeast Asia.
Figure 1: Economic Growth in Southeast Asia
10
5
Annual Percentage Change
0
Brunei
Cambodia
Indonesia
Lao PDR
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam
-5
-10
-15
-20
2020 2021 2022
Source: IMF, World Economic Outlook, October 2021
WHAT IS DIGITAL TRADE?
Economic activities that are considered to be digital trade have been around long before
attempts were made to define and measure them. Different components of digital trade
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already appear in national income and trade statistics. However, the digitalization of
economic activities calls for new and complementary approaches to measure such activities.
The structure of digital trade itself provides a useful way for measuring and monitoring the
different layers (good, services and data flows) and the networks of cross-border economic
activities that are underpinned by digital technologies. 2 Indeed, policy formulation and
implementation to promote such activities would be difficult to do if they do not make use
of the proper metrics that capture digital trade.
The OECD, WTO and IMF recently collaborated to conceptualize and measure digital trade.
The first version of the “Handbook on Measuring Digital Trade” was published in 2020
(OECD, WTO and IMF, 2020). This guide (p.20) defines digital trade as “all trade that is
digitally ordered and/or digitally delivered”.
The Handbook (p.34) further defines digitally ordered trade as “international sale or
purchase of a good or service, conducted over computer networks by methods specifically
designed for the purpose of receiving or placing orders”.3 It is important to note that this
definition says nothing about online payment and delivery of goods or services.
Furthermore, orders that are made by manually typed email are excluded. Thus, the
definition of digitally ordered trade is very close to that of e-commerce.4
Digitally delivered trade is defined in the Handbook (p.35) as “international transactions
that are delivered remotely in an electronic format, using computer networks specifically
designed for the purpose”. This definition implies that digitally delivered trade cannot
involve the delivery of physical goods. Hence, trade involving a software stored in a disc is
not a digitally delivered trade but the same software downloaded from a seller’s website
(cloud) is.
The Handbook also provides a separate treatment of transactions that are enabled by digital
intermediation platforms (DIPs).5 Examples of DIPs include Airbnb, Alibaba, Amazon,
Booking.com, eBay, Gojek, Grab, Lazada, Shopee and Tencent. DIPs are characterized by
two features, namely: (i) direct interactions between multiple buyers and multiple sellers,
and (ii) transacted goods and services that are not supplied by the platform. The goods and
services transacted using DIPs are measured as transactions that take the form of digitally
ordered trade and/or digitally delivered trade. However, the intermediation services
provided by DIPs can be measured in terms of the fees they collect from users or/and from
revenues generated from advertising and data services.6 A key challenge in measuring the
activities of DIPs within a given country is the identification of the location of non-resident
DIPs for the purpose of measuring cross-border trade in services.
Despite the recent attempts at conceptualizing and defining, measuring digital trade remains
a significant challenge. A significant proportion of digital trade is already captured in
national income statistics (e.g. as part of import and export values) but digital trade per se
is often not reported as a distinct category. National statistical agencies will have to collect
additional data and information to enable countries to measure digital trade more accurately
and comprehensively. In the meantime, policy makers will have to rely on eclectic methods
(e.g. surveys) and proxies (e.g. e-commerce) to approximate that task.
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SIZE AND POTENTIAL OF DIGITAL TRADE IN SOUTHEAST ASIA
The nascent nature of data collection on digital trade implies that it is currently not possible
to have a comprehensive measurement of digital trade in Southeast Asia. Nevertheless,
some statistics are available that can give proximate and partial assessments of the size of
digital trade in the region.
Digitally ordered trade is a sub-set of total e-commerce (which comprises domestic and
cross-border e-commerce). Recent estimates of online retail sales for 2021 and 2026 do
indicate that e-commerce growth will continue rapidly in the next five years (Figure 2).
Indonesia will remain the largest e-commerce market in the region but the fastest growing
e-commerce markets in the next four years will be Vietnam (CAGR 32 percent) and The
Philippines (CAGR 21 percent).
How important is e-commerce to Southeast Asian economies? The share of e-commerce
sales as a percentage of national income (GDP) in the region is lower than that observed in
China (8.8 percent) (Figure 3). The country with the highest e-commerce share of GDP is
Indonesia (6.3 percent) while Malaysia, Thailand and Vietnam are at similar levels (around
4 percent). However, not all e-commerce involves cross-border trade. The degree of
economic openness (proxied by the ratio of total trade to GDP) could provide some hints
about how much of the e-commerce is digital trade (cross-border e-commerce). The higher
degree of economic openness for countries such as Singapore, Vietnam, Malaysia and
Thailand indicates that digital trade is likely to be higher in these countries (Figure 3). There
is evidence on the link between trade and e-commerce. In a recent study involving firms in
Asia, it was found that firms participating in e-commerce have higher productivity and
export 50 percent more than other firms (Kinda, 2019).7 Country surveys should be able to
provide additional insights on this.
Figure 2: Estimated Size of E-Commerce in Southeast Asia,
2021 & 2025
120
104
100
80
US$ (billion)
60 53
39
40 35
26
19 21
20 14 12 13
7.1 9.8
0
Indonesia Malaysia Philippines Singapore Thailand Vietnam
2021 2025
Source: Google, Temasek and Bain & Co. (2021)
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Figure 3: E-Commerce and Trade Shares of GDP, 2021
10.0 350.0
9.0
E-Commerce Share of GDP (%)
300.0
8.0
Trade Share of GDP (%)
7.0 250.0
6.0 200.0
5.0
4.0 150.0
3.0 100.0
2.0
50.0
1.0
0.0 0.0
sia
d
es
am
es
re
a
ia
in
lan
es
po
at
n
ay
Ch
tn
pi
on
St
ai
ga
al
e
lip
Th
Vi
d
d
M
Sin
i
In
ite
Ph
Un
E-Commerce Share of GDP Trade Share of GDP
Sources: Google, Temasek and Bain & Co. (2021), World Bank, Statistica
Indonesia’s latest survey on e-commerce indicated that only 4.68 percent of firms
participating in e-commerce are involved in exporting in 2019.8 In contrast, 31.9 percent of
firms in Malaysia (in 2019) that are involved in e-commerce have customers located
overseas.9 For Malaysia’s manufacturing sector, 16.3 percent of e-commerce revenues are
derived from exports.
Data on cross-border e-commerce transactions involving consumption (B2C) is scarce.
Payment companies have provided some evidence that such transactions could be high in
some countries in the region. The share of cross-border transactions in e-commerce trade in
relatively open economies such as Singapore and Malaysia stood at 55-60 percent and 40
percent in 2017, respectively.10 A higher proportion of consumers is likely to engage in
cross-border e-commerce in economies that are smaller in size (population), and have a
higher degree of openness and higher per capita income. Thus, these three factors are likely
to drive e-commerce growth in the region albeit their importance are likely to differ from
country to country. Singapore, which has a very small and open economy with a high per
capita income, has a very high proportion of its consumers engaging in cross-border e-
commerce (Figure 4). In contrast, consumers in Indonesia, which has a large economy
(population) but a less open economy with lower per capita income, undertake less cross-
border shopping. Thus, domestic e-commerce is likely to be an important source of growth
in large economies such as Indonesia (as well as China and the US).
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Figure 4: Domestic and Cross-Border Shopping, 2018
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Indonesia Singapore Philippines China United States
Shop domestically only Shop domestically and cross-border Shop cross-border only
Source: PayPal Cross-Border Consumer Research 2018
General discussions thus far deal largely with digitally ordered trade, and data on trade that
are digitally delivered and those involving digitally intermediated platforms are difficult to
come by. There are, for example, no country-level statistics on the size of digitally delivered
services. The indications, however, are that these services have become increasingly
important in recent years. These include video on demand (e.g. Netflix) and music on
demand (e.g. Spotify) services which have experienced high double-digit growth (Google,
Temasek & Bain, 2021). Advertising revenues on search engine (Google) and social media
platforms (Facebook) as well as other types of e-commerce platforms (ride-sharing e.g.
Grab and Gojek) have become very prominent in many countries. Even though it is difficult
to estimate the size of digitally delivered services, broad estimates of digital service
revenues in the region can be imputed from the tax rates and estimated tax revenues reported
in the media (Table 1).11
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Table 1: Digital Services Taxation and Revenues in Southeast Asia
Country Tax Implementation Tax Revenues Imputed
Date Annual
Revenues
Indonesia 10% VAT 1 July 2020 USD 228 million USD 2.28
(3.3 trillion rupiah) billion
Forecast, Annual
based on actual Q1-
Q2 2021
Malaysia 6% Digital 1 January 2020 USD 577 million USD 9.28
Tax (RM 2.4 billion) billion
Forecast, Annual
Philippines 12% VAT Approved in USD 573 million USD 4.78
lower house in (Pesos 29.1 billion) billion
Sept 2021 Forecast, Annual
Singapore 7% GST 1 January 2021 USD 67 million USD 957
(S$90 million) million
Forecast, Annual
Thailand 7% VAT 1 September USD 154.70 million USD 2.2 billion
2020 (5 billion baht)
Forecast, Annual
Vietnam 10% Foreign 1 July 2020 USD 49 million USD 490
Contractor (VNĐ1.14 trillion) million
Tax (FCT) (US$49.5 million)
comprising Actual, Annual
5% VAT and
5%
corporate
income tax
Source: Various Media Sources
The variations in imputed revenues of digital services across countries highlight the
interplay of the factors discussed earlier for e-commerce, namely, population size and per
capita income. The combination of a moderate market size and a relatively high income per
capita for Malaysia translates into a sizeable digital service trade volume. In contrast,
Indonesia has a large population but lower income per capita with the latter limiting the
demand for cross-border digital services.
POLICIES TO ENHANCE DIGITAL TRADE
Digital trade is clearly an area where policy making is proceeding without the benefit of
being informed by comprehensive data on the phenomenon. Much of the recent policy
discussions have centred on enhancing the digital economy. Digital trade is an important
component of the digital economy, and many of the elements in digital economy policies
are also relevant for digital trade. These include policy measures that focuses on improving
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connectivity, human capital, payment system, data privacy and security, and intellectual
property rights. The challenges in the region are likely to be different across countries. Take,
for example, UNCTAD’s B2C E-Commerce Index which provides a convenient (and
partial) measure of factors that drive B2C e-commerce (which includes digital trade)
(Figure 5). Indonesia’s B2C e-commerce is clearly constrained by weaknesses in its
logistics and payment systems while the quality of Malaysia’s internet services is a
hampering factor. Thailand has great advantages in logistics but also faces problems in the
quality of its internet services.
Beyond digital economy polices, there are also challenges that are of a more specific nature
to the promotion of digital trade.12 The European Centre for International Political Economy
(ECIPE) has constructed an index called the Digital Trade Restrictiveness Index (DTRI) to
capture the extent of restrictions on digital trade (Figure 6). The DTRI incorporates four
major classes of restrictions: (i) fiscal restrictions and market access (ii) establishment
restrictions (iii) data restrictions and (iv) trading restrictions.13 Establishment restrictions
appear to be major constraints for digital trade in Malaysia and Thailand. Indonesia
registered relatively high levels of restrictions in a number of areas – fiscal and market
access, data and trading. The contrasting levels of restrictions in countries with large market
size such as China and the US suggests that Indonesia should not necessarily aim for higher
level of restrictions to promote domestic digital transactions at the expense of digital trade.
Figure 5: UNCTAD's B2C E-Commerce Index 2020
Singapore
100
United 80
Malaysia
States
60
Share of Individuals Using the
40 Internet
20 Share of Individuals with an
Account
China 0 Thailand
Secure Internet Servers
UPU Postal Reliability Score
Philippine 2020 Index Value
Vietnam
s
Indonesia
Source: UNCTAD (2020)
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Figure 6: ECIPE's Digital Trade Restrictiveness Index, 2017
Brunei
0.9
0.8
United States 0.7 Indonesia
0.6
0.5
0.4 Fiscal Restrictions & Market
0.3 Access
China 0.2 Malaysia Establishment Restrictions
0.1
0
Data Restrictions
Trading Restrictions
Vietnam Philippines
Thailand Singapore
Source: ECIPE
Another interesting attempt at measuring regulatory measures that affect trade in digitally
enabled services, is the OECD Services Trade Restrictiveness Index (Figure 7). The Index
is an amalgam of five key regulatory barriers, namely, (i) infrastructure and connectivity,
(ii) electronic transactions, (iii) payment systems, (iv) intellectual property rights, and other
barriers affecting digitally enabled services.14 Infrastructure-related regulatory barriers in
Thailand is clearly limiting the potential growth of its digitally-enabled services. In
Malaysia, the intellectual property rights regime needs to be further improved.
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Figure 7: OECD Services Trade Restrictiveness Index 2020
Infrastructure
0.25
0.2
0.15
0.1 Electronic Indonesia
Other Barriers
Transactions
0.05 Malaysia
0 Thailand
China
United States
Intellectual Property
Payment System
Rights
Source: OECD
Finally, another policy area that requires greater attention is economic cooperation between
countries to enhance digital trade. Southeast Asian countries have participated in free trade
agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP)
which contains provisions that promote digital trade through regulatory convergence. In
addition, some countries have also bilaterally engaged in digital agreement agreements such
as the Singapore-Australia Digital Economy Agreement. 15 These trade agreements can
complement domestic regulations and policies. However, not all provisions that are related
to digital economy and trade are present in some of these agreements that promote digital
trade.16
CONCLUSION
Digital trade, defined as trade that is digitally ordered and/or digitally delivered, is becoming
increasingly important. Policy-making in promoting or facilitating digital trade is
proceeding in the absence of comprehensive data on digital trade. Such data is bound to
improve over time and strengthen evidenced-based policy making.
Structural differences across countries in Southeast Asia imply that policy priorities in
digital trade are likely to differ across countries. Recent attempts to measure digital trade
and formulate indices that capture the various enablers as well as constraints on digital trade
have yielded useful insights on what these policy priorities should be for each country.
Unilateral, regional and bilateral trade agreements as well as digital economy agreements
are also likely to become important drivers of digital trade in the future.
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REFERENCES
Erh, Joey. (2021). “Assessing Digital Economy Policies in Six Southeast Asian Countries”,
ISEAS Perspective, Issue 2021, No. 50.
Evenett, Simon J. and Fritz, Johannes Fritz. (2021). “Mapping Policies Affecting Digital
Trade”, in Addressing Impediments to Digital Trade, edited by Ingo Borchert and L Alan
Winters. Voxeu.org.
Facebook and Bain & Co. (2021). Southeast Asia, the home for digital transformation: A
SYNC Southeast Asia Report.
Ferencz, J (2019), “The OECD Digital Services Trade Restrictiveness Index”, OECD Trade
Policy Papers No. 221.
Google, Temasek and Bain & Co. (2021). E-Conomy 2021 Report.
Hinrich Foundation. (2019). The Data Revolution: Capturing the Digital Trade Opportunity
at Home and Abroad.
Honey, Stephanie. (2021). Enabling trust, trade flows, and innovation: the DEPA at work.
Hinrich Foundation.
Huawei. (2017). Trade Rules and the Digital Economy: A White Paper.
Kinda, Tidiane. (2019), “E-commerce as a Potential New Engine for Growth in Asia”, IMF
Working Paper No. WP/19/135.
OECD, WTO and IMF. (2020). Handbook on Measuring Digital Trade, Version 1.
UNCTAD. (2020). The UNCTAD B2C E-Commerce Index 2020. Geneve: UNCTAD.
1
IMF, World Economic Outlook, October 2021:
https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-
2021
2
Digital trade deals with cross-border transactions, but some of the activities linked to these
transactions take place in domestic markets e.g. domestic transport and logistics activities in origin
and destination countries.
3
Computer networks include the web/internet (including via mobile devices), extranet and
electronic data interchange.
4
OECD defines an e-commerce transaction as “the sale or purchase of goods or services,
conducted over computer networks by methods specifically designed for the purpose of receiving
or placing of orders”. See: https://stats.oecd.org/glossary/detail.asp?ID=4721
5
There are a few rationales for a separate treatment of digital intermediation platforms (DIPs).
They include: (i) the potentially disruptive impact of DIPs on the economy, (ii) an interest in a
targeted focus on DIPs, and (iii) specific conceptual and statistical challenges in measuring DIP
transactions.
6
Fee-based digital intermediation platforms can be defined in the Handbook (p.36) as: “Online
interfaces that facilitate, for a fee, the direct interaction between multiple buyers and multiple
sellers, without the platform taking economic ownership of the goods or rendering the services that
are being sold (intermediated)”.
7
There are a number of plausible explanations underlying the positive relationship between e-
commerce participation and exporting. Lower input purchase cost from e-commerce procurement
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and lower transactions cost in exporting could be explanatory factors. However, more microdata
are required to provide empirical evidence for this claim.
8
BPS (2020), Table 5, p.36.
9
DOS (2020), Table 13, p.19.
10
Sources: (1) https://www.ecinsider.my/2014/02/cross-border-ecommerce-in-singapore-
malaysia.html
(2) https://www.export.gov/apex/article2?id=Singapore-eCommerce
11
This is a broad estimate. There are differences in coverage across countries which need to be
taken into account for a more detailed comparison.
12
See Evenett and Fritz (2021) for a discussion of these issues.
13
The components of the DTE are as follows: (1) Fiscal Restrictions covers tariffs and trade
defense, taxation and subsidies and public procurement; (2) Establishment restrictions covers
foreign investment restrictions, intellectual property rights measures, competition policy and
business mobility; (3) Restrictions on data covers data policies, intermediate liability, and content
access; (4) Trading restrictions covers quantitative trade restrictions, standards, online sales and
transactions.
14
See Ferencz (2019) for more details on the index.
15
These will be discussed in greater detail in a forthcoming ISEAS Perspective by Tham Siew
Yean.
16
For more detailed discussions, see Huawei (2017), Hinrich Foundation (2019), and Honey
(2021).
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